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Senate of Pennsylvania
Session of 2017 - 2018 Regular Session


Posted: March 31, 2017 12:33 PM
From: Senator Lisa Baker
To: All Senate members
Subject: Providing for Tax Exempt Savings in the ABLE Program
Please join me in co-sponsoring legislation establishing the Pennsylvania ABLE Savings Program Tax Exemption Act providing for the taxation or exemption from taxation of amounts and events relating to the PA ABLE Savings Program.

This legislation is companion language to the ABLE Act, Senate Bill 879/Act 17 of 2016, establishing a state Treasury-administered “Achieving a Better Life Experience” program. The program encourages families to set aside funds for costs related to the disability of a family member, giving those families saving for disability expenses state income tax benefits similar to that currently provided to those saving for college-bound students.

Specifically, this proposal provides that contributions into a PA ABLE account may be deducted annually from taxable income up to a maximum of the annual federal gift tax exclusion (currently $14,000) per beneficiary. Additionally, it provides that any distributions from or changes to a PA ABLE account that are not subject to federal income tax will not be subject to Pennsylvania state income tax.

As background, ABLE accounts are modeled on 529 college savings accounts and have similar federal income tax benefits. Federal law, passed in December 2014, authorizes the states to establish an ABLE program through which people with disabilities and their families and friends can save to cover a wide-range of disability-related expenses.

Providing individuals with disabilities and their families with state income tax benefits, including deductibility of contributions into ABLE accounts, similar to that currently provided to families saving for college, would advance those individuals’ own efforts to achieve financial security and is good public policy. Financial concerns are among the many challenges faced by individuals with disabilities and their families. Only about one-third of adults with disabilities in the United States are employed. Median income of households with a family member that has a disability is nearly 2.5 times less than other households. PA ABLE will provide families with an opportunity to work toward meeting their disability-related expenses and achieving greater financial security.

Federal restrictions on ABLE accounts will limit the revenue impact of a state tax deduction for ABLE contributions. There are several federal restrictions on ABLE accounts that are not applicable to 529 college savings that will limit the contributions made to accounts for individuals with disabilities and, consequently, will moderate the state revenue impact of a tax deduction.

Unlike college savings programs, there can be only one account for each eligible individual and annual contributions from all sources are limited to the annual federal gift tax exclusion of $14,000. So the maximum annual revenue loss for the Commonwealth for a single individual with disabilities would be $429.80 – regardless of how many taxpayers contributed to the account.

Last session, this language was added by the Senate as an amendment to House Bill 1319 but was not considered or concurred in by the House.

Thank you for your consideration.

Introduced as SB677